How much of the gain would be taxed to todd if margo sells

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Todd and Margo are seeking a divorce and no longer live together. Margo has offered to pay Todd $42,000 per year for five years if Margo receives sole title to the art collection. This collection cost them $100,000 but is now worth $360,000. All other property is to be divided equally.

a) If Margo's payments cease in the event of Todd's death, how are the payments treated for tax purposes?

b) How much of the gain would be taxed to Todd if Margo sells the art at the end of five years?

c) Compute the tax cost (benefit) to Todd (Margo) if the payments qualify as alimony. Assume that Todd (Margo) has a marginal tax rate of 15 percent (35 percent), and ignore the time value of money.

d) How much more over the five-year period should Todd demand in order to agree to al1ow the payments to cease in the event of his death? (How much more will make him indifferent between receiving $42,000 a year in no alimony payments and receiving higher payments that are considered to be alimony?)

Reference no: EM13905846

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